Netflix Stock Option Program (SOP)

We want our employees to have an opportunity to take part in Netflix’s success. Most companies mandate how your compensation is structured (base, bonus, and restricted stock), but at Netflix, we believe in guaranteed top-of-personal-market pay and providing employees with a choice in the degree to which they participate in equity investment and its related risks.

Our Stock Option Program (SOP) is unique and, sometimes, confusing. To help you better understand the program, watch the video or read more about it below.

When you join Netflix, an amount equal to 5% of your annual salary is automatically allocated to the Stock Option Program. You can think of these as ‘free’ options, at no cost to you. In your first year working at Netflix, this allocation is prorated from your hire date, and it’s annualized from then on.

If you want the opportunity to participate at a higher level, you can enroll in the program’s Annual Supplemental Stock Option Allocation (Supplemental Allocation). You can direct up to 100% of your salary, reducing your cash compensation in exchange for stock options. This occurs within 30 days of joining Netflix or during the program's annual enrollment period, which typically occurs in December.

A few exceptions…

In certain APAC countries (Singapore, Japan, Korea and Taiwan), the supplemental allocation is not offered. However, to allow for greater equity participation, free options are calculated based on 10% of your annual salary.

Hourly employees are not eligible for free options, only the supplemental allocation.

Options are granted monthly on the first trading day. We use a basic calculation to figure out the number of options granted. We first calculate the amount of funds that will be available on a monthly basis to acquire options, then apply it to the formula used to calculate the number of options granted.

(a) 5% or 10% or none + (b) Supplemental Allocation

40% of NFLX Closing Price

Here’s an example:

Annual salary = $240,000

5% = $12,000 (Monthly = $1,000)

10% = $24,000 (Monthly = $2,000)

Supplemental Allocation = $36,000 (Monthly allocation = $3,000)

NFLX Closing Price = $200

(a) $1,000 + (b) $3,000

40% x $200

You are granted 50 options.

Please note:

Anytime a partial option is calculated, it is rounded down to the nearest option and the remaining dollar amount is carried over to the next month.

For those outside of the U.S., the monthly free and supplemental allocation is converted to USD.

In order to derive value from an option acquired from a supplemental allocation, the value of the Netflix stock must appreciate at least 40%.

Exercise your stock options online at any time prior to their expiration date. An E*TRADE account will be opened for you upon your first grant. As a defined “insider” of the company, be sure to familiarize yourself with trading window guidelines.

For most, you automatically participate in the program at a certain level at no risk to you (free options). You can choose to participate to a greater extent by exchanging your compensation for more options. Here are some reasons for why you may choose to participate.

Reduce your taxable income - the amount of compensation you direct to the Supplemental Allocation is not taxed. The only taxable event occurs once you exercise your stock options.

Dollar for dollar you get 2.5x the return on an option over buying stock.

Fully vested - you have the right to exercise at the time of grant. This means you can exercise them immediately within current or future trading windows. (To read up on trading windows and your role in the Stock Option Program, review the Netflix Insider Trading Policy.)

Take them with you - options expire 10 years after the grant date, regardless of whether you are a Netflix employee at that time.

It’s important for you to be aware of a few things that may be affected by your participation in the Supplemental Allocation.

U.S. employees and employees on temporary assignment outside the U.S.

As described earlier, you reduce your cash compensation in exchange for receiving additional options. Because you’re reducing your pay, benefits that are normally determined and deducted from your pay can be impacted. For example, if you participate in the Netflix 401(k) Plan, the calculation of your percentage deferral is based on your bi-weekly pay. If you reduce your cash compensation by directing money to the Supplemental Allocation, you will also reduce your 401(k) deferral. In addition, be aware of the impact on your take-home pay—particularly if the health plans you enrolled in exceed our Health Benefit Allowance—so you don’t reduce your monthly pay to the point you can’t cover your premiums.

The amount of compensation you direct to the Supplemental Allocation is not considered when calculating your short-term disability benefits.

Netflix currently grants only non-qualified stock options. Under U.S. tax law, this means you aren’t taxed at the time of the grant. You owe tax when you exercise the option, but only on the difference between the exercise price and the market value of the stock at the time of exercise.

As described earlier, you reduce your cash compensation in exchange for receiving additional options. Because you’re reducing your pay, benefits that are normally determined and deducted from your pay, or calculated based on your earnings, can be impacted. An example is contribution to a pension or retirement plan, and/or Netflix contribution to your pension or retirement plan. Additionally, your Supplemental Allocation is not included in compensation when determining your sick leave and disability (where applicable). Finally, be aware of the impact on your take-home pay—particularly if the health plans you enrolled in (where applicable) exceed our Health Benefit Allowance—so you don’t reduce your monthly pay to the point you can’t cover your premiums.

The options granted to you are not considered part of your employment relationship with Netflix and are considered to be separate from your salary and other benefits.

​When exercising your options, i​f you want your sales proceeds paid to you in a currency other than the US Dollars, ​E*TRADE will charge ​a currency exchange fee of 2%​ ​for amounts up to $100,000. For amounts of $100,000 or more, the currency exchange fee is 1.25%. As an alternative, you can accept delivery of the sales proceeds in US Dollars and then work with you​r​ own financial institution to convert the US Dollars into the desired currency at either a flat fee or at a possibly lower exchange fee rate, depending on the fees charged by your own financial institution.